Exhibit 10.11
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      State of Iowa
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Space Above This Line For Recording Data
                                        -------------

Prepared By:
                  JASON WARTICK
                  IOWA STATE BANK
                  5 EAST CALL STREET, ALGONA,
                  IA 50511 (515) 295-3595

Return To:        IOWA STATE BANK
                  5 EAST CALL STREET
                  ALGONA, IA 50511

                          OPEN-END REAL ESTATE MORTGAGE
                          (With Future Advance Clause)

1. DATE AND PARTIES. The date of this Mortgage is 12-16-2005 and the parties and
their addresses are as follows:

MORTGAGOR:        HYDROGEN ENGINE CENTER, INC.
                  602 FAIR STREET
                  ALGONA, IA 50511

                  [ ] Refer to the Addendum which is  attached and  incorporated
                      herein for additional Mortgagors. The  Addendum is located
                      on ________________________.


LENDER:           IOWA STATE BANK
                  ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF IOWA
                  5 EAST CALL STREET
                  ALGONA, IA 50511

2. MORTGAGE. For good and valuable consideration, the receipt and sufficiency of
which is  acknowledged,  and to secure the  Secured  Debt  (hereafter  defined),
Mortgagor  grants,  bargains,  warrants,  conveys  and  mortgages  to Lender the
following described  property:  (If the legal description of the property is not
on page one of this Mortgage, it is located on ATTACHMENT "A".)

The property is located in      KOSSUTH  at LOT (1) OF SNAP-ON INDUSTRIAL PARK,
                           -----------------    --------------------------------
                                    (County)                 (Address)
ALGONA   , Iowa       50511
---------       --------------------
(City)              (Zip Code)
<PAGE>

Together with all rights, easements,  appurtenances,  royalties, mineral rights,
oil and gas  rights,  crops,  timber,  all  diversion  payments  or third  party
payments  made to crop  producers,  and all  existing  and future  improvements,
structures,  fixtures,  and  replacements  that may  now,  or at any time in the
future,  be  part  of the  real  estate  described  above  (all  referred  to as
"Property"). The term Property also includes, but is not limited to, any and all
water wells, water, ditches, reservoirs, reservoir sites and dams located on the
real estate and all  riparian  and water rights  associated  with the  Property,
however established.

NOTICE:  THIS MORTGAGE  SECURES  CREDIT IN THE AMOUNT OF $ 500,000.00  LOANS AND
ADVANCES UP TO THIS AMOUNT,  TOGETHER WITH INTEREST,  ARE SENIOR TO INDEBTEDNESS
TO OTHER CREDITORS UNDER SUBSEQUENTLY RECORDED OR FILED MORTGAGES AND LIENS.

3. MAXIMUM  OBLIGATION  LIMIT.  The total  principal  amount of the Secured Debt
(hereafter  defined)  secured by this  Mortgage at any one time shall not exceed
the amount stated above.  This  limitation of amount does not include  interest,
loan charges, commitment fees, brokerage commissions,  attorneys' fees and other
charges  validly made  pursuant to this  Mortgage and does not apply to advances
(or interest  accrued on such advances) made under the terms of this Mortgage to
protect Lender's security and to perform any of the covenants  contained in this
Mortgage.  Future  advances  are  contemplated  and,  along  with  other  future
obligations, are secured by this Mortgage even though all or part may not yet be
advanced.  Nothing in this Mortgage,  however,  shall constitute a commitment to
make  additional or future loans or advances in any amount.  Any such commitment
would need to be agreed to in a separate writing.

4. SECURED DEBT DEFINED.  The term "Secured Debt"  includes,  but is not limited
to, the following:

A. The promissory note(s), contract(s),  guaranty(ies) or other evidence of debt
described below and all extensions,  renewals,  modifications  or  substitutions
(Evidence of Debt) (e.g.,  borrower's name, note amount, interest rate, maturity
date): NOTE DATED 12-16-2006 IN THE AMOUNT OF $500,000.00.

B. All future  advances from Lender to Mortgagor or other future  obligations of
Mortgagor to Lender under any  promissory  note,  contract,  guaranty,  or other
evidence of debt  existing now or executed  after this  Mortgage  whether or not
this Mortgage is specifically referred to in the evidence of debt and whether or
not such future  advances or  obligations  are incurred for any purpose that was
related or unrelated to the purpose of the Evidence of Debt.

C. All obligations Mortgagor owes to Lender, which now exist or may later arise,
to the extent not prohibited by law, including,  but not limited to, liabilities
for overdrafts  relating to any deposit account  agreement between Mortgagor and
Lender.
                                      -2-
<PAGE>

D. All  additional  sums advanced and expenses  incurred by Lender for insuring,
preserving or otherwise protecting the Property and its value and any other sums
advanced and expenses incurred by Lender under the terms of this Mortgage,  plus
interest at the highest  rate in effect,  from time to time,  as provided in the
Evidence of Debt.

E. Mortgagor's  performance under the terms of any instrument  evidencing a debt
by  Mortgagor  to Lender and any Mortgage  securing,  guarantying,  or otherwise
relating to the debt.

If more than one person signs this Mortgage as Mortgagor,  each Mortgagor agrees
that this  Mortgage  will  secure all  future  advances  and future  obligations
described above that are given to or incurred by any one or more  Mortgagor,  or
any one or more  Mortgagor  and others.  This Mortgage will not secure any other
debt if Lender  fails,  with  respect to such other debt,  to make any  required
disclosure about this Mortgage or if Lender fails to give any required notice of
the right of rescission.

5. PAYMENTS.  Mortgagor agrees to make all payments on the Secured Debt when due
and in accordance with the terms of the Evidence of Debt or this Mortgage.

6. WARRANTY OF TITLE.  Mortgagor  covenants that Mortgagor is lawfully seized of
the  estate  conveyed  by this  Mortgage  and has the right to  grant,  bargain,
warrant,  convey, sell, and mortgage the Property and warrants that the Property
is unencumbered, except for encumbrances of record.

7. CLAIMS  AGAINST  TITLE.  Mortgagor  will pay all taxes,  assessments,  liens,
encumbrances,  lease  payments,  ground  rents,  utilities,  and  other  charges
relating to the Property  when due.  Lender may require  Mortgagor to provide to
Lender  copies  of all  notices  that  such  amounts  are due  and the  receipts
evidencing  Mortgagor's  payment.  Mortgagor  will defend  title to the Property
against any claims that would impair the lien of this Mortgage. Mortgagor agrees
to assign to Lender,  as  requested  by Lender,  any rights,  claims or defenses
which  Mortgagor  may have  against  parties who supply  labor or  materials  to
improve or maintain the Property.

8. PRIOR SECURITY INTERESTS.  With regard to any other mortgage,  deed of trust,
security agreement or other lien document that created a prior security interest
or  encumbrance  on the Property and that may have priority over this  Mortgage,
Mortgagor agrees:

         A. To make all  payments  when due and to  perform  or comply  with all
covenants.
         B. To promptly  deliver to Lender any notices that  Mortgagor  receives
from the holder.
         C. Not to make or permit any  modification  or extension of, and not to
request or accept any future  advances  under any note or agreement  secured by,
the other mortgage,  deed of trust or security  agreement unless Lender consents
in writing.

9. DUE ON SALE OR  ENCUMBRANCE.  Lender may,  at its option,  declare the entire
balance of the Secured Debt to be immediately  due and payable upon the creation
of any lien, encumbrance, transfer, or sale, or contract for any of these on the
Property.  However, if the Property includes Mortgagor's residence, this section
shall be subject to the restrictions  imposed by federal law (12 C.F.R. 591), as
applicable.  For the purposes of this section, the term "Property" also includes
any interest to all or any part of the Property.  This  covenant  shall run with
the  Property  and shall remain in effect until the Secured Debt is paid in full
and this Mortgage is released.

                                      -3-
<PAGE>

10.  TRANSFER OF AN INTEREST IN THE  MORTGAGOR.  If Mortgagor is an entity other
than a natural person (such as a corporation or other organization),  Lender may
demand  immediate  payment if (1) a beneficial  interest in Mortgagor is sold or
transferred;  (2) there is a change in either the  identity or number of members
of a  partnership  or similar  entity;  or (3) there is a change in ownership of
more than 25 percent of the voting  stock of a  corporation  or similar  entity.
However,  Lender  may  not  demand  payment  in the  above  situations  if it is
prohibited by law as of the date of this Mortgage.

11. ENTITY WARRANTIES AND REPRESENTATIONS.  If Mortgagor is an entity other than
a natural person (such as a corporation or other organization),  Mortgagor makes
to Lender the following warranties and representations which shall be continuing
as long as the Secured Debt remains outstanding:

         A. Mortgagor is an entity which is duly organized and validly  existing
in the Mortgagor's  state of incorporation  (or  organization).  Mortgagor is in
good standing in all states in which Mortgagor transacts business. Mortgagor has
the power and  authority to own the Property and to carry on its business as now
being conducted and, as applicable, is qualified to do so in each state in which
Mortgagor operates.

         B.  The  execution,  delivery  and  performance  of  this  Mortgage  by
Mortgagor  and the  obligation  evidenced by the Evidence of Debt are within the
power of  Mortgagor,  have been duly  authorized,  have  received all  necessary
governmental  approval,  and will not violate any  provision of law, or order of
court or governmental agency.

         C. Other than  disclosed in writing  Mortgagor has not changed its name
within the last ten years and has not used any other trade or  fictitious  name.
Without Lender's prior written consent,  Mortgagor does not and will not use any
other name and will preserve its existing name, trade names and franchises until
the Secured Debt is satisfied.

12. PROPERTY  CONDITION,  ALTERATIONS  AND  INSPECTION.  Mortgagor will keep the
Property in good condition and make all repairs that are  reasonably  necessary.
Mortgagor  will give Lender prompt notice of any loss or damage to the Property.
Mortgagor  will keep the Property free of noxious  weeds and grasses.  Mortgagor
will not initiate,  join in or consent to any change in any private  restrictive
covenant,  zoning ordinance or other public or private  restriction  limiting or
defining the uses which may be made of the Property or any part of the Property,
without  Lender's  prior written  consent.  Mortgagor  will notify Lender of all
demands,  proceedings,  claims, and actions against Mortgagor or any other owner
made under law or  regulation  regarding  use,  ownership  and  occupancy of the
Property.  Mortgagor will comply with all legal  requirements and  restrictions,
whether  public or private,  with respect to the use of the Property.  Mortgagor
also agrees  that the nature of the  occupancy  and use will not change  without
Lender's prior written consent.

No portion of the Property will be removed,  demolished  or  materially  altered
without  Lender's  prior written  consent except that Mortgagor has the right to
remove items of personal property  comprising a part of the Property that become
worn or obsolete,  provided that such  personal  property is replaced with other
personal  property at least equal in value to the  replaced  personal  property,
free from any title retention device,  security  agreement or other encumbrance.
Such  replacement  of personal  property will be deemed  subject to the security
interest  created by this Mortgage.  Mortgagor  shall not partition or subdivide
the Property without  Lender's prior written consent.  Lender or Lender's agents
may, at Lender's  option,  enter the  Property  at any  reasonable  time for the


                                      -4-
<PAGE>

purpose of inspecting  the  Property.  Any  inspection of the Property  shall be
entirely  for  Lender's  benefit and  Mortgagor  will in no way rely on Lender's
inspection.

13.  AUTHORITY  TO PERFORM.  If  Mortgagor  fails to perform any of  Mortgagor's
duties  under this  Mortgage,  or any other  mortgage,  deed of trust,  security
agreement or other lien document that has priority  over this  Mortgage,  Lender
may, without notice, perform the duties or cause them to be performed. Mortgagor
appoints Lender as attorney in fact to sign  Mortgagor's  name or pay any amount
necessary for  performance.  If any construction on the Property is discontinued
or not carried on in a reasonable manner, Lender may do whatever is necessary to
protect Lender's security interest in the Property.  This may include completing
the  construction.  Lender's right to perform for Mortgagor  shall not create an
obligation to perform,  and Lender's failure to perform will not preclude Lender
from exercising any of Lender's other rights under the law or this Mortgage. Any
amounts paid by Lender for  insuring,  preserving  or otherwise  protecting  the
Property  and  Lender's  security  interest  will be due on demand and will bear
interest from the date of the payment until paid in full at the interest rate in
effect from time to time according to the terms of the Evidence of Debt.

14.  ASSIGNMENT  OF LEASES  AND  RENTS.  Mortgagor  assigns,  grants,  bargains,
warrants,  conveys and mortgages to Lender as additional security all the right,
title and interest in the following (Property).

         A. Existing or future leases, subleases,  licenses,  guaranties and any
other  written or verbal  agreements  for the use and occupancy of the Property,
including  but not  limited  to,  any  extensions,  renewals,  modifications  or
replacements (Leases).

         B. Rents,  issues and profits,  including but not limited to,  security
deposits,  minimum  rents,  percentage  rents,  additional  rents,  common  area
maintenance charges, parking charges, real estate taxes, other applicable taxes,
insurance  premium   contributions,   liquidated   damages  following   default,
cancellation  premiums,  "loss of rents"  insurance,  guest receipts,  revenues,
royalties,  proceeds,  bonuses, accounts,  contract rights, general intangibles,
and all rights and claims which Mortgagor may have that in any way pertain to or
are on account of the use or  occupancy of the whole or any part of the Property
(Rents).

In the event any item  listed as Leases or Rents is  determined  to be  personal
property, this Assignment will also be regarded as a security agreement.

Mortgagor  will  promptly  provide  Lender  with  copies of the  Leases and will
certify these Leases are true and correct  copies.  The existing  Leases will be
provided on execution  of the  Assignment,  and all future  Leases and any other
information with respect to these Leases will be provided immediately after they
are executed. Mortgagor may collect, receive, enjoy and use the Rents so long as
Mortgagor is not in default. Mortgagor will not collect in advance any Rents due
in future  lease  periods,  unless  Mortgagor  first  obtains  Lender's  written
consent. Upon default,  Mortgagor will receive any Rents in trust for Lender and
Mortgagor  will not  commingle  the Rents with any other  funds.  When Lender so
directs,  Mortgagor  will  endorse and  deliver  any  payments of Rents from the
Property to Lender.  Amounts collected will be applied at Lender's discretion to
the  Secured  Debts,  the  costs of  managing,  protecting  and  preserving  the
Property,  and other  necessary  expenses.  Mortgagor  agrees that this Security
Instrument is immediately  effective  between Mortgagor and Lender and effective
as to  third  parties  on  the  recording  of  this  Assignment.  This  Security
Instrument will remain  effective during any statutory  redemption  period until
the Secured Debts are satisfied.

                                      -5-
<PAGE>

As long as this Assignment is in effect,  Mortgagor warrants and represents that
no default exists under the Leases,  and the parties  subject to the Leases have
not violated any applicable  law on leases,  licenses and landlords and tenants.
Mortgagor,  at its sole cost and expense,  will keep,  observe and perform,  and
require  all other  parties  to the  Leases to comply  with the  Leases  and any
applicable  law.  If  Mortgagor  or any party to the Lease  defaults or fails to
observe any applicable law,  Mortgagor will promptly notify Lender. If Mortgagor
neglects or refuses to enforce  compliance  with the terms of the  Leases,  then
Lender may, at Lender's option, enforce compliance.

Mortgagor  will not sublet,  modify,  extend,  cancel,  or  otherwise  alter the
Leases,  or accept the surrender of the Property  covered by the Leases  (unless
the Leases so require)  without  Lender's  consent.  Mortgagor  will not assign,
compromise,  subordinate or encumber the Leases and Rents without Lender's prior
written  consent.  Lender  does not assume or become  liable for the  Property's
maintenance,  depreciation,  or other  losses or  damages  when  Lender  acts to
manage,  protect or preserve the Property,  except for losses and damages due to
Lender's  gross  negligence or  intentional  torts.  Otherwise,  Mortgagor  will
indemnify Lender and hold Lender harmless for all liability, loss or damage that
Lender may incur when Lender opts to exercise  any of its  remedies  against any
party obligated under the Leases.

15. CONDOMINIUMS;  PLANNED UNIT DEVELOPMENTS. If the Property includes a unit in
a  condominium  or a planned  unit  development,  Mortgagor  will perform all of
Mortgagor's  duties  under  the  covenants,   by-laws,  or  regulations  of  the
condominium or planned unit development.

16. DEFAULT. Mortgagor will be in default if any of the following occur:

         A. Any party  obligated  on the Secured Debt fails to make payment when
due;

         B. A  breach  of any  term or  covenant  in this  Mortgage,  any  prior
mortgage or any  construction  loan agreement,  security  agreement or any other
document evidencing,  guarantying, securing or otherwise relating to the Secured
Debt;

         C. The making or  furnishing  of any verbal or written  representation,
statement  or  warranty  to Lender that is false or  incorrect  in any  material
respect by Mortgagor or any person or entity obligated on the Secured Debt;

         D. The death, dissolution,  or insolvency of, appointment of a receiver
for, or  application  of any debtor  relief law to,  Mortgagor  or any person or
entity obligated on the Secured Debt;

         E. A good faith  belief by Lender at any time that  Lender is  insecure
with  respect to any person or entity  obligated on the Secured Debt or that the
prospect of any payment is impaired or the value of the Property is impaired;

         F.  A  material  adverse  change  in  Mortgagor's   business  including
ownership,  management,  and financial  conditions,  which Lender in its opinion
believes impairs the value of the Property or repayment of the Secured Debt; or

                                      -6-
<PAGE>

         G. Any loan  proceeds  are used for a purpose that will  contribute  to
excessive  erosion of highly  erodible land or to the  conversion of wetlands to
produce an agricultural  commodity,  as further explained in 7 C.F.R. Part 1940,
Subpart G, Exhibit M.

17. REMEDIES ON DEFAULT.  In some instances,  federal and state law will require
Lender to provide Mortgagor with notice of the right to cure,  mediation notices
or other  notices and may establish  time  schedules  for  foreclosure  actions.
Subject to these limitations, if any, Lender may accelerate the Secured Debt and
foreclose  this  Mortgage in a manner  provided by law if this  Mortgagor  is in
default. Upon a default by the Mortgagor,  the Lender may take possession of the
Property  itself or through a court  appointed  receiver,  without regard to the
solvency or insolvency of the Mortgagor, the value of the Property, the adequacy
of the Lender's security,  or the existence of any deficiency judgment,  and may
operate  the  Property  and  collect  the rents  and apply  them to the costs of
operating the Property and/or to the unpaid debt.

At the option of Lender, all or any part of the agreed fees and charges, accrued
interest and principal shall become  immediately  due and payable,  after giving
notice  if  required  by law,  upon  the  occurrence  of a  default  or  anytime
thereafter.  In addition,  Lender shall be entitled to all the remedies provided
by law, the Evidence of Debt,  other  evidences of debt,  this  Mortgage and any
related documents. All remedies are distinct,  cumulative and not exclusive, and
the Lender is  entitled  to all  remedies  provided  at law or  equity,  whether
expressly  set forth or not. The  acceptance  by Lender of any sum in payment or
partial  payment on the Secured Debt after the balance is due or is  accelerated
or after  foreclosure  proceedings  are filed shall not  constitute  a waiver of
Lender's right to require full and complete cure of any existing default. By not
exercising  any remedy on  Mortgagor's  default,  Lender does not waive Lender's
right to later consider the event a default if it continues or happens again.

18.  REDEMPTION.  Mortgagor  agrees  that in the  event of  foreclosure  of this
Mortgage, at the sole discretion of Lender, Lender may elect to reduce or extend
the period of redemption for the sale of the Property to a period of time as may
then be authorized  under the  circumstances  and under any section of Iowa Code
Chapter  628,  or any  other  Iowa Code  section,  now in effect or as may be in
effect at the time of foreclosure.

19. EXPENSES;  ADVANCES ON COVENANTS;  ATTORNEYS' FEES; COLLECTION COSTS. Except
when  prohibited  by law,  Mortgagor  agrees to pay all of Lender's  expenses if
Mortgagor  breaches any covenant in this  Mortgage.  Mortgagor  will also pay on
demand all of Lender's expenses incurred in collecting,  insuring, preserving or
protecting  the Property or in any  inventories,  audits,  inspections  or other
examination  by Lender in respect to the Property.  Mortgagor  agrees to pay all
costs and expenses incurred by Lender in enforcing or protecting Lender's rights
and remedies  under this  Mortgage,  including,  but not limited to,  attorneys'
fees, court costs, and other legal expenses.  Once the Secured Debt is fully and
finally paid, Lender agrees to release this Mortgage and Mortgagor agrees to pay
for any  recordation  costs.  All such  amounts  are due on demand and will bear
interest  from the time of the advance at the highest rate in effect,  from time
to time, as provided in the Evidence of Debt and as permitted by law.

20.  ENVIRONMENTAL LAWS AND HAZARDOUS  SUBSTANCES.  As used in this section, (1)
"Environmental Law" means, without limitation,  the Comprehensive  Environmental
Response,  Compensation and Liability Act (CERCLA,  42 U.S.C. 9601 et seq.), all
other  federal,  state and local laws,  regulations,  ordinances,  court orders,
attorney general opinions or interpretive  letters concerning the public health,
safety,  welfare,  environment  or a  hazardous  substance;  and (2)  "Hazardous


                                      -7-
<PAGE>

Substance" means any toxic, radioactive or hazardous material,  waste, pollutant
or contaminant which has characteristics which render the substance dangerous or
potentially dangerous to the public health, safety, welfare or environment.  The
term  includes,   without  limitation,  any  substances  defined  as  "hazardous
material," "toxic substances,"  "hazardous waste" or "hazardous substance" under
any Environmental Law. Mortgagor represents, warrants and agrees that, except as
previously disclosed and acknowledged in writing:

         A.  No  Hazardous   Substance  has  been,   is,  or  will  be  located,
transported,  manufactured, treated, refined, or handled by any person on, under
or about the Property,  except in the ordinary  course of business and in strict
compliance with all applicable Environmental Law.

         B.  Mortgagor has not and will not cause,  contribute to, or permit the
release of any Hazardous Substance on the Property.

         C.  Mortgagor  will  immediately  notify  Lender  if (1) a  release  or
threatened release of Hazardous Substance occurs on, under or about the Property
or migrates or  threatens  to migrate  from nearby  property;  or (2) there is a
violation of any  Environmental  Law concerning the Property.  In such an event,
Mortgagor  will  take  all  necessary   remedial   action  in  accordance   with
Environmental Law.

         D.  Mortgagor  has no  knowledge  of or reason to believe  there is any
pending or threatened  investigation,  claim, or proceeding of any kind relating
to (1) any Hazardous  Substance located on, under or about the Property;  or (2)
any  violation by Mortgagor or any tenant of any  Environmental  Law.  Mortgagor
will  immediately  notify  Lender in writing as soon as Mortgagor  has reason to
believe  there  is any such  pending  or  threatened  investigation,  claim,  or
proceeding.  In such an event, Lender has the right, but not the obligation,  to
participate in any such proceeding  including the right to receive copies of any
documents relating to such proceedings.

         E.  Mortgagor and every tenant have been,  are and shall remain in full
compliance with any applicable Environmental Law.

         F. There are no underground storage tanks,  private dumps or open wells
located on or under the  Property  and no such tank,  dump or well will be added
unless Lender first consents in writing.

         G.  Mortgagor  will  regularly   inspect  the  Property,   monitor  the
activities  and  operations  on the  Property,  and  confirm  that all  permits,
licenses or approvals required by any applicable  Environmental Law are obtained
and complied with.

         H.  Mortgagor  will  permit,  or cause any tenant to permit,  Lender or
Lender's  agent to enter and inspect the  Property and review all records at any
reasonable  time to  determine  (1) the  existence,  location  and nature of any
Hazardous  Substance  on,  under  or  about  the  Property;  (2) the  existence,
location,  nature,  and  magnitude  of any  Hazardous  Substance  that  has been
released on, under or about the  Property;  or (3) whether or not  Mortgagor and
any tenant are in compliance with applicable Environmental Law.

         I.  Upon  Lender's  request  and  at any  time,  Mortgagor  agrees,  at
Mortgagor's expense, to engage a qualified  environmental engineer to prepare an


                                      -8-
<PAGE>

environmental  audit of the  Property and to submit the results of such audit to
Lender. The choice of the environmental  engineer who will perform such audit is
subject to Lender's approval.

         J.  Lender has the right,  but not the  obligation,  to perform  any of
Mortgagor's obligations under this section at Mortgagor's expense.

         K. As a consequence  of any breach of any  representation,  warranty or
promise made in this section,  (1) Mortgagor  will indemnify and hold Lender and
Lender's  successors or assigns  harmless  from and against all losses,  claims,
demands,   liabilities,   damages,  cleanup,  response  and  remediation  costs,
penalties and expenses, including without limitation all costs of litigation and
attorneys'  fees,  which Lender and Lender's  successors or assigns may sustain;
and (2) at Lender's  discretion,  Lender may release this Mortgage and in return
Mortgagor  will provide  Lender with  collateral  of at least equal value to the
Property  secured by this Mortgage  without  prejudice to any of Lender's rights
under this Mortgage.

         L.  Notwithstanding  any of the language  contained in this Mortgage to
the  contrary,  the terms of this  section  shall  survive  any  foreclosure  or
satisfaction  of this  Mortgage  regardless of any passage of title to Lender or
any disposition by Lender of any or all of the Property. Any claims and defenses
to the contrary are hereby waived.

21.  CONDEMNATION.  Mortgagor will give Lender prompt notice of any action, real
or threatened,  by private or public  entities to purchase or take any or all of
the Property, including any easements, through condemnation,  eminent domain, or
any other means.  Mortgagor  further agrees to notify Lender of any  proceedings
instituted  for the  establishment  of any sewer,  water,  conservation,  ditch,
drainage, or other district relating to or binding upon the Property or any part
of it.  Mortgagor  authorizes  Lender to intervene in Mortgagor's name in any of
the above  described  actions  or claims  and to collect  and  receive  all sums
resulting from the action or claim.  Mortgagor assigns to Lender the proceeds of
any award or claim for damages  connected with a condemnation or other taking of
all or any part of the Property.  Such proceeds shall be considered payments and
will be applied as provided in this  Mortgage.  This  assignment  of proceeds is
subject to the terms of any prior mortgage, deed of trust, security agreement or
other lien document.

22. INSURANCE. Mortgagor agrees to maintain insurance as follows:

         A.  Mortgagor  shall keep the  improvements  now  existing or hereafter
built on the Property insured against loss by fire,  hazards included within the
term "extended  coverage" and any other hazards,  including  floods or flooding,
for which Lender requires  insurance.  This insurance shall be maintained in the
amounts and for the periods that Lender requires.  What Lender requires pursuant
to the  preceding  two sentences can change during the term of the Secured Debt.
The  insurance  carrier  providing  the  insurance  shall be chosen by Mortgagor
subject to Lender's  approval,  which  shall not be  unreasonably  withheld.  If
Mortgagor  fails to  maintain  the  coverage  described  above,  Lender  may, at
Lender's  option,  obtain  coverage to protect  Lender's  rights in the Property
according to the terms of this Mortgage.

         All insurance  policies and renewals  shall be acceptable to Lender and
shall include a standard  "mortgage clause" and, where applicable,  "lender loss
payee clause."  Mortgagor  shall  immediately  notify Lender of  cancellation or
termination of the  insurance.  Lender shall have the right to hold the policies
and renewals. If Lender requires, Mortgagor shall immediately give to Lender all


                                      -9-
<PAGE>

receipts of paid premiums and renewal notices.  Upon loss,  Mortgagor shall give
immediate notice to the insurance  carrier and Lender.  Lender may make proof of
loss if not made immediately by Mortgagor.

         Unless  Lender and  Mortgagor  otherwise  agree in  writing,  insurance
proceeds shall be applied to  restoration  or repair of the Property  damaged if
the restoration or repair is economically  feasible and Lender's security is not
lessened.  If the restoration or repair is not economically feasible or Lender's
security  would be  lessened,  the  insurance  proceeds  shall be applied to the
Secured Debt,  whether or not then due,  with any excess paid to  Mortgagor.  If
Mortgagor abandons the Property, or does not answer within 30 days a notice from
Lender that the insurance carrier has offered to settle a claim, then Lender may
collect the insurance proceeds, Lender may use the proceeds to repair or restore
the  Property or to pay the  Secured  Debt  whether or not then due.  The 30-day
period  will  begin  when the  notice  is given.  Unless  Lender  and  Mortgagor
otherwise  agree in writing,  any application of proceeds to principal shall not
extend or postpone  the due date of  scheduled  payments or change the amount of
the payments.  If the Property is acquired by Lender,  Mortgagor's  right to any
insurance policies and proceeds resulting from damage to the Property before the
acquisition  shall pass to Lender to the extent of the Secured Debt  immediately
before the acquisition.
         B.  Mortgagor  agrees  to  maintain   comprehensive  general  liability
insurance  naming  Lender as an  additional  insured in an amount  acceptable to
Lender, insuring against claims arising from any accident or occurrence in or on
the Property.

         C. Mortgagor  agrees to maintain  rental loss or business  interruption
insurance, as required by Lender, in an amount equal to at least coverage of one
year's  debt  service,  and  required  escrow  account  deposits  (if  agreed to
separately in writing), under a form of policy acceptable to Lender.

23. NO ESCROW FOR TAXES AND INSURANCE.  Unless otherwise  provided in a separate
agreement,  Mortgagor  will not be required to pay to Lender funds for taxes and
insurance in escrow.

24. FINANCIAL REPORTS AND ADDITIONAL DOCUMENTS. Mortgagor will provide to Lender
upon request,  any financial statement or information Lender may deem necessary.
Mortgagor  warrants  that all financial  statements  and  information  Mortgagor
provides to Lender are, or will be, accurate,  correct, and complete.  Mortgagor
agrees  to  sign,  deliver,  and  file as  Lender  may  reasonably  request  any
additional  documents or  certifications  that Lender may consider  necessary to
perfect,  continue, and preserve Mortgagor's obligations under this Mortgage and
Lender's  lien status on the Property.  If Mortgagor  fails to do so, Lender may
sign,  deliver,  and file such documents or certificates in Mortgagor's name and
Mortgagor  hereby  irrevocably  appoints Lender or Lender's agent as attorney in
fact to do the things necessary to comply with this section.

25. JOINT AND INDIVIDUAL  LIABILITY;  CO-SIGNERS;  SUCCESSORS AND ASSIGNS BOUND.
All duties under this Mortgage are joint and individual. If Mortgagor signs this
Mortgage  but  does not sign the  Evidence  of Debt,  Mortgagor  does so only to
mortgage  Mortgagor's  interest in the Property to secure payment of the Secured
Debt and Mortgagor  does not agree to be personally  liable on the Secured Debt.
Mortgagor  agrees that Lender and any party to this Mortgage may extend,  modify
or make any change in the terms of this Mortgage or the Evidence of Debt without


                                      -10-
<PAGE>

Mortgagor's consent.  Such a change will not release Mortgagor from the terms of
this  Mortgage.  The duties and benefits of this Mortgage shall bind and benefit
the successors and assigns of Mortgagor and Lender.

If this Mortgage  secures a guaranty  between  Lender and Mortgagor and does not
directly secure the obligation  which is guarantied,  Mortgagor  agrees to waive
any rights that may prevent  Lender from  bringing  any action or claim  against
Mortgagor or any party indebted under the obligation including,  but not limited
to, anti-deficiency or one-action laws.

26. APPLICABLE LAW; SEVERABILITY;  INTERPRETATION.  This Mortgage is governed by
the laws of the  jurisdiction  in which Lender is located,  except to the extent
otherwise  required  by the  laws of the  jurisdiction  where  the  Property  is
located.  This Mortgage is complete and fully integrated.  This Mortgage may not
be  amended  or  modified  by oral  agreement.  Any  section  or  clause in this
Mortgage,  attachments,  or any  agreement  related  to the  Secured  Debt  that
conflicts with  applicable law will not be effective,  unless that law expressly
or impliedly  permits the  variations  by written  agreement.  If any section or
clause of this Mortgage cannot be enforced  according to its terms, that section
or  clause  will be  severed  and  will not  affect  the  enforceability  of the
remainder of this Mortgage. Whenever used, the singular shall include the plural
and the plural the  singular.  The captions and headings of the sections of this
Mortgage are for convenience  only and are not to be used to interpret or define
the terms of this Mortgage. Time is of the essence in this Mortgage.

27.  NOTICE.  Unless  otherwise  required by law,  any notice  shall be given by
delivering  it or by mailing it by first class mail to the  appropriate  party's
address  on page 1 of this  Mortgage,  or to any  other  address  designated  in
writing. Notice to one mortgagor will be deemed to be notice to all mortgagors.

28. WAIVERS. Except to the extent prohibited by law, Mortgagor waives any rights
relating to  reinstatement,  the marshalling of liens and assets,  all rights of
dower and distributive share and all homestead  exemption rights relating to the
Property.

29. U.C.C.  PROVISIONS.  If checked, the following are applicable to, but do not
limit, this Mortgage:

         [X]Construction  Loan. This Mortgage secures an obligation incurred for
the construction of an improvement on the Property.

         [ ] Fixture Filing.  Mortgagor grants to Lender a security  interest in
all goods that  Mortgagor  owns now or in the future and that are or will become
fixtures related to the Property.

         [ ] Crops;  Timber;  Minerals;  Rents,  Issues and  Profits.  Mortgagor
grants to Lender a security  interest in all crops,  timber and minerals located
on the Property as well as all rents, issues and profits of them including,  but
not limited to, all Conservation Reserve Program (CRP) and Payment in Kind (PIK)
payments and similar governmental  programs (all of which shall also be included
in the term "Property").

         [ ] Personal  Property.  Mortgagor grants to Lender a security interest
in all  personal  property  located  on or  connected  with the  Property.  This
security interest includes all farm products,  inventory,  equipment,  accounts,
documents,  instruments, chattel paper, general intangibles, and all other items
of personal  property  Mortgagor  owns now or in the future and that are used or
useful in the construction,  ownership, operation, management, or maintenance of


                                      -11-
<PAGE>

the Property.  The term "personal property"  specifically excludes that property
described as "household  goods" secured in connection  with a "consumer" loan as
those terms are defined in applicable federal  regulations  governing unfair and
deceptive credit practices.

         [ ] Filing As Financing  Statement.  Mortgagor  agrees and acknowledges
that this Mortgage also  suffices as a financing  statement and as such,  may be
filed of  record as a  financing  statement  for  purposes  of  Article 9 of the
Uniform Commercial Code. A carbon, photographic,  image or other reproduction of
this Mortgage is sufficient as a financing statement.

30. OTHER TERMS. If checked, the following are applicable to this Mortgage:

         [X]Purchase  Money  Mortgage.  This is a  purchase  money  mortgage  as
defined by Iowa law.

         [X] Line of Credit.  The  Secured  Debt  includes a  revolving  line of
credit  provision.  Although the Secured Debt may be reduced to a zero  balance,
this Mortgage will remain in effect until released.

         [ ] Agricultural  Property.  Mortgagor  covenants and warrants that the
Property will be used  principally for agricultural or farming purposes and that
Mortgagor  is an  individual  or  entity  allowed  to own  agricultural  land as
specified by law.

         [ ] Separate  Assignment.  The Mortgagor has executed or will execute a
separate  assignment of leases and rents.  If the separate  assignment of leases
and rents is properly executed and recorded,  then the separate  assignment will
supersede this Security Instrument's "Assignment of Leases and Rents" section.

         [ ]  Additional Terms.


SIGNATURES:  By  signing  below,  Mortgagor  agrees to the  terms and  covenants
contained in this Mortgage and in any attachments.  Mortgagor also  acknowledges
receipt of a copy of this Mortgage on the date stated above on Page 1.

         |_| Actual  authority  was  granted  to the  parties  signing  below by
resolution signed and dated .

Entity Name:  HYDROGEN ENGINE CENTER, INC.

/s/ Mike Schlitz
--------------------------------------------  ----------------------------------
(Signature)MIKE SCHILTZ, SECRETARY    (Date)  (Signature)                 (Date)

--------------------------------------------  ----------------------------------
(Signature)                           (Date)  (Signature)                 (Date)

[ ]  Refer to the  Addendum  which  is  attached  and  incorporated  herein  for
additional Mortgagors, signatures and acknowledgments.


                                      -12-
<PAGE>

ACKNOWLEDGMENT:

     STATE OF                   , COUNTY OF                    } ss.
              ------------------            -------------------

              On this _____day of ________________   before me, a Notary Public
              in the state of Iowa, personally appeared ________________________
              to me known to be the person(s) named in and who executed the
(Individual)  foregoing instrument, and acknowledged that ______________________
              executed the same as ____________________voluntary act and deed.


My commission expires:


                                              _________________________________
                                              (Notary Public)


STATE OF IOWA, COUNTY OF                    } ss.
                         -------------------

(Business Entity Acknowledgment)

         On this  16THday of  DECEMBER,  2005 before me, a Notary  Public in the
         state of Iowa, personally appeared MIKE SCHILTZ to me personally known,
         who being by me duly  sworn or  affirmed  did say that  that  person is
         SECRETARY of said entity,  that (the seal affixed to said instrument is
         the seal of (Business  said entity or no seal has been procured by said
         entity) and that said  instrument  or Entity was signed and sealed,  if
         applicable,  on behalf of the said entity by  authority of its Acknowl-
         board of  directors/partners/members  and the said  SECRETARY  edgment)
         acknowledged  the  execution  of  said  instrument  by  it  voluntarily
         executed.

My commission expires: 8-10-07

                                                     Michael E. Gabor
                                                     ---------------------------
                                                     (Notary Public)

(In the  following  statement  "I"  means the  Mortgagor.)  I  understand  that
homestead  property is in many cases  protected from the claims of creditors and
exempt from judicial sale; and that by signing this contract I voluntarily  give
up my rights to this  protection  for this property with respect to claims based
upon this-contract.


/s/ Mike Schlitz
------------------------------------        ------------------------------------
HYDROGEN ENGINE CENTER, INC.  (Date)        (Signature)                 (Date)


                                      -13-
<PAGE>


                                 Attachment "A"

Lot (1) of Snap-On  Industrial  park as  recorded  in the Plat as  Document  No.
2002-1701,  located in part of the West Half of the Northwest Fractional Quarter
(W1/2  NWfrl 1/4) of Section Six (6),  Township  Ninety-five  (95) North,  Range
Twenty-eight (28), West of the 5th P.M., City of Algona, Kossuth County, Iowa.


/s/ Mike Schiltz                                     12-16-05
----------------------------------                   --------
Mike Schiltz, Secretary                              Date